By John D. McKinnon and Ryan Tracy
WASHINGTON -- Facebook Inc. agreed to pay a record $5 billion
fine and better police its data-privacy practices to settle a
long-running federal investigation that has damaged the company's
standing with consumers and clouded its future.
Under the settlement, Facebook founder and CEO Mark Zuckerberg
will be required to certify that the company is in compliance with
new privacy strictures, and could be subject to civil and criminal
penalties for false certifications.
"The $5 billion penalty against Facebook is the largest ever
imposed on any company for violating consumers' privacy and almost
20 times greater than the largest privacy or data security penalty
ever imposed worldwide, " the Federal Trade Commission said in a
news release. "It is one of the largest penalties ever assessed by
the U.S. government for any violation."
But the force of the decision was blunted by stinging dissents
from the two Democrats on the five-member commission, who said the
financial penalty was insufficient and the settlement does little
to change Facebook's basic incentives to gather and leverage users'
data.
"The settlement imposes no meaningful changes to the company's
structure or financial incentives, which led to these violations,"
commissioner Rohit Chopra said in a statement. "Nor does it include
any restrictions on the company's mass surveillance or advertising
tactics."
"Rather than accepting this settlement, I believe we should have
initiated litigation against Facebook and its CEO Mark Zuckerberg,"
said commissioner Rebecca Kelly Slaughter.
Taking note of the dissents, the Republican board majority led
by Chairman Joe Simons said that suing Mr. Zuckerberg for past
violations wouldn't serve the public interest.
"Mr. Zuckerberg will be held accountable for certifying
quarterly -- under threat of civil and criminal penalties -- that
the company's privacy program is in compliance with the order," the
FTC's majority wrote. "The relief we have achieved today solves
concrete problems, rather than venting frustration with
individuals."
Also Wednesday, the Securities and Exchange Commission is
expected to announce a settlement with Facebook -- including a fine
of more than $100 million -- over claims it insufficiently warned
investors that developers and other third parties may have obtained
users' data without their permission or in violation of Facebook
policies, according to a person familiar with the matter.
The settlement with the FTC requires creation of a new committee
of Facebook's board to monitor the company's privacy practices.
Legal experts said they couldn't recall prior FTC privacy
settlements imposing such a requirement.
"If the committee had appropriate authority and was answerable
to the FTC, it could have a significant impact," David Vladeck, a
former head of the agency's consumer protection bureau during the
Obama administration, said on Monday before the agreement's
announcement.
The order also requires Facebook to report to the FTC incidents
where data of 500 or more users has been compromised, along with
the company's efforts to address the problems, and to deliver the
documentation within 30 days.
The federal probe began more than a year ago after disclosures
that data on tens of millions of Facebook users had been improperly
transferred to a political data-analytics firm, Cambridge
Analytica, that did work for Donald Trump's 2016 presidential
campaign.
The FTC's investigation found more problems, Mr. Chopra said in
his dissent, including Facebook misrepresenting its user settings
and privacy tools to lure users into sharing information.
"The investigation also uncovered additional violations,
including false assurances to users that they would need to opt in
to facial recognition, " he said. "In addition, Facebook encouraged
users to turn over their phone numbers for security purposes, but
used those phone numbers to feed the company's surveillance and
advertising business."
The lack of bipartisan agreement on the settlement within the
FTC sends "the wrong message to tech companies," Sens. Ed Markey
(D., Mass.), Josh Hawley (R., Mo.) and Richard Blumenthal (D.,
Conn.) said in a letter to the FTC after some details of the
settlement were disclosed earlier this month.
They told the agency they expected "strict structural reforms
and managerial accountability that would put an end to Facebook's
privacy invasions."
Lawmakers of both parties as well as Mr. Trump have gone on the
offensive over a range of concerns relating to some tech companies'
immense size and influence, as well as their perceived
intrusiveness in people's lives. That reflects broader unhappiness
in Washington over Big Tech, and particularly internet companies
such as Facebook and Alphabet Inc.'s Google unit.
For Facebook, the FTC settlement appeared unlikely to have much
immediate impact on its lucrative business model. The company earns
almost all its profits from selling advertising that targets users
based on their online behavior.
But the deal also appeared unlikely to do much to restore the
company's image, which has been badly tarnished during the
investigation.
When a March Wall Street Journal/NBC News poll asked Americans
how much they trusted huge tech firms to protect their personal
information, Facebook scored the worst, with 60% responding they
trusted the company "not at all." That compared with 37% for Google
and 28% for Amazon.com Inc.
The investigation and settlement also appear likely to heighten
scrutiny of Mr. Zuckerberg, although the company succeeded in
softening FTC efforts to target him individually.
The federal probe also has led to increasing focus on other
alleged privacy missteps by the company that is likely to continue.
Even as the FTC settlement was being completed this week, for
example, new questions were being raised over potential risks to
children from its Messenger Kids app.
The settlement could fuel a growing partisan debate over online
privacy. To the extent lawmakers aren't satisfied by the deal, that
may make both the FTC and Facebook targets during the 2020
campaign. It also may bolster efforts in Congress to grant more
privacy authority to the FTC or another agency, although such
legislation is currently stalled.
Write to John D. McKinnon at john.mckinnon@wsj.com and Ryan
Tracy at ryan.tracy@wsj.com
(END) Dow Jones Newswires
July 24, 2019 08:44 ET (12:44 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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